the economic cost of the draft the americun economic ... · the economic cost of the draft walter...

The Economic Cost of the Draft

Walter Y. Oi

The Americun Economic Review, Volume 57, Issue 2, Papers and Proceedings of theSeventy-ninth Annual Meeting of the American Economic Association (May, 1967),39-62.

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THE ECONOhXIC COST OF THE DRAFT*

By W~~LTER Y. 01Unhe&y of Washhqpon

The draft represents one means of supplying the armed forces withqualified personnel. Under the current draft, accessions to military ser-vice are of three types: (1) true volunteers who freely choose militaryservice over alternative civilian job opportunities, (2) reluctant volun-teers who enlist in preference to being drafted, and (3) draftees whoare involuntarily inducted. The last two groups are coerced to serve bythe milita.ry service obligation that is imposed by the current draftlaw

In times of war when nearly everyone must serve to assure the de-fense of the nation, alternatives to a draft are judged to be too costlyor infeasible. Peacetime demands for military personnel are, however,considerably smaller, with the consequence that a draft becomes selec-tive. Debates over the equity of the selection process (which under thecurrent draft translates into deferment policies) a*re symptomatic of asearch for an alternative to current military manpower procurementpolicies. To say that a particular alternative such as an all-volunteerforce1 is preferable to the current system implies that the cost of thealternative is, in some sense, lower than the cost of the current draft.If the draft were abolished, military pay and other recruitment incen-tives must be improved to attract sufficient recruits to meet prescribedmilitary manpower objectives. In his statement before the HouseArmed Services subcommittee, the Hon. T. D. Morris (Assistant Secre-tary of Defense) inclicated that an all-volunteer force of 2.65 millionmen would increase the annual military payroll budget by $4 to $17

*A considerable part of the research for this paper was done when I served as a con-sultant for the Office of the Assistant Secretary of Defense from June, 1964, to July, 1965I am deeply indebted to the assistance and information which was provided by variousmembers of the OASD staff. I would like to express my special thanks to Mr. William A.Gorham, Dr. Harold Wool, and Prof* Stuart II. Altman, who provided counsel, encourage-ment, and assistance in my year of service on the manpower study. The statistical andclerical assistance supplied by Mr. W. M. Mahoney and Mrs. IL Catton is gratefullyacknowledged. They are absolved of responsibility for any errors of fact or interpretationwhich may still remain in this paper. A fuller discussion of the material in Section I, aswell as the supporting data, are contained in a paper which I am presenting at the Uni-versity of Chicago. See “The Costs and Implications of an All-Volunteer Force.”

’ The current draft law (the Universal Military Training and Service Act of 1951 asamended and extended) expires on June 30, 1967. The proposed alternatives to an exten-sion of the present law include (1) lottery at a younger age of induction, thereby shorten-ing the period of draft liability, (2) universal military service, (3) equivalent nationalservice wherein some youths could serve in the Peace Corps, VISTA, or other governmentsponsored programs, and (4) establishment of a voluntary professional army*

39

40 AMERICAN ECONOMIC ASSOCXATION

billions? The military payroll of the Department of Defense (hereafterabbreviated DOD) is not the economic cost of labor resources allocatedto the uniformed services. The draft has surely affected both the leveland structure of military pay. Moreover, many of the men who serveare conscripted or are recruited under the threat of a draft liability. Inaddition to the costs borne by those who do serve, it is argued that theuncertainty of being drafted creates other real and psychic costs forthose who avoid mili.tary service by obtaining deferments.

The cost of acquiring and retaining military personnel can be mea-sured in several ways of which the budgetary cost is one. The financialcost to the economy is defined in this paper as the value of civilian out-puts that could have been produced by the labor resources which wereallocated to the armed forces. This concept which completely ignoresoccupational preferences provides a measure of technical efficiency interms of civilian outputs that were foregone to achieve given levels ofmilitary preparedness. The full economic cost of the draft must, how-ever, acknowledge occupational preferences for military versus civilianemployments. If an individual has an aversion to service life, he could,in principle? be compensated by enough to induce him to volunteer.Presently, individuals who would require such compensation are forcedto serve by the draft law. In this paper, I propose to compare thesecosts for two hypothetical forces with the same active duty strength of2.65 million men: one a purely voluntary force and the other a mixedforce composed of conscripts, true and reluctant volunteers.

I. Fume Strengths and Military Munpower ReqzkementsThe labor resources demanded by the armed forces can be measured

by force strengths. The force strength is simply a stock demand formilitary personnel unadjusted for the quality of servicemen or theproportion in an effective status? The total defense establishment canconveniently be divided into three forces: (1) officers on active duty,(2) enlisted men on active duty, and (3) paid drill reserves. The lastcomponent engages in active duty for training only and is rarely usedto bolster active duty strengths.4

In the six years prior to the Vietnam build-up, the average strength

2 House of Representatives, 89th Gong., Second Sess., “Review of the Administrationand Operation of the Selective Service System,” Hearings before the Committee on ArmedServices (June 22, 23, 24, 28, 29, and 30, 1966) (hereafter abbreviated as House Hear-ings), pp. 992349 ; see especially pp. 9936-40.'The effective strength is defined as the number of men who are not in a “training

status.” Men who are being trained or who are engaged in training others are deductedfrom total force strength to arrive at the effective strength. A lower personnel turnoverwould therefore lead to a larger proportion in an “effective” status.

’ In the last decade, reservists were recalled to active duty in significant numbers onIyonce. During the Berlin crisis of FY 1962, some 111 thousand Army and National Guardreservists were activated to raise Army force strengths from 858.6 to 1,066.4 thousand9

MILITARY MANPOWER PROCUREMENT 41

in all active and reserve components was just under 3.7 million men ofwhich 2 6 million were on active duty (see Table 1). The fluctuationsin active duty strengths are largely due to international tensions. Sincea discussion of the factors which determine force strength objectives isbeyond the scope of this paper, the peacetime strength objectives aretaken to be exogenous.

A more meaningful demand concept is provided by the gross flowdemand for accessions from civilian life. It is the number of requiredaccessions & that must be recruited or conscripted to replace lossesduring the year Lt and to achieve changes in stock demands (St -s 1t-l .

A t = L + (St - &--I)

If force strength St is held constant, required accessions must equallosses which arise because of voluntary separations upon completionof obligated tours of duty, retirements, deaths, and discharges formedical and unsuitability reasons.

The military manpower procurement channels which have evolvedunder a draft have strongly influenced the characteristics of servicemen.Of the 645 thousand annual accessions to military service in FY1960-65, 539 thousand (83.6 percent) entered through a variety of vol-untary programs. An individual can discharge his service obligation byentering active duty forces as an enlisted man or oacer. He can ac-complish the former as a voluntary enlistment or as an involuntarydraftee, usually to the Army.’ Except for the doctors and dentistsdraft, all officer procurement programs are voluntary. Finally, thedraft liability can be satisfied by entering a reserve or National Guardunit which requires active duty only for training. The historical trendsin accessions and projected accessions in FY 1970-75 under a continueddraft are shown in the lower panel of Table 1. In order to extrapolatethe characteristics of m.en who are likely to enter military service in thefuture, it is convenient to study the service experience of age classes(cohorts) born in specific years.

The disposition of military service obligations by men born in 1938was estimated from a sample of Selective Service registrants? By July,1964, 51.6 percent of this age class had some active or reserve militaryservice with the highest participation rate of 59.5 percent for men withsome college education. Given current physical, moral? and mental

’ A few delinquents (mainly reservists who fail to attend drill meetings) are draftedinto the other three services. The Navy drafted some men in FY 19.56, and the Marinesin FY 1966. Some voluntary enlistments serve in two-year active duty reserve programsoffered by the Navy and Marine Corps. The Army offered a two-year reserve enlistmentin 1956, but the program was dropped in 1958.

’ Confer House Hearings, p. 10011.

TABLE 1

FORCE STRENGTHS AND ACCESSIONS FROM CIVIL L IFE

(Actual FY 1960-65 and Projected FY 1970-75, in Thousands)

Force strengthstDOD (active duty) total. .............

Oficers. ...........................Enlisted. ..........................

Army (active duty) total ..............Officers. ...........................Enlisted. ..........................

Reserves and National Guard (paid drill:All components total ..................

Accessions from civil lifeDOD total. .........................

First enlistments#. .................Inductions1 . . . . . . . . . . . . . . . . . . . . . . . .Officers 5

Army . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .First enlistment& .................InductionsJ’. .......................Officers 5. ..........................

Reserves and National Guard#. ........Total entries all components. ..........

--

.

.

.

.

.

i.

.

..

.

.

.

.

.

.

1960 1961 1962 1963

2,476.4 2,483.g 2,807.g 2,697.7316.7 314.8 343.1 333.4

2J59.7 2,168.9 2,464.7 2,364.3873.1 858.6 1,066.4 975.2101.2 99.9 116.1 107.8771.8 758.7 950.4 867.4

1,079 1,086 958 9643,555.4 3,569.g 3,765.g 3,661.7

469.8 475.3 622.4349 386 423

90 60 15830.8 29.3 41.4

206.3 188.6 303.2106 118 12790 60 15810.3 10.6 18.2

130.0 130.0 90.0599.8 605.3 712.4

488.0 569.3373 377

74 15141.0 41.3

203.0 285.8113 - 117

74 15116.0 17.8

110.0 170.0598.0 739.3

--

--

1964 1965

2,685.2336.4

2,348.g972.4110.3862.2

1,0483J33.2

2,653.1 2,634.0337.6 330.3

2,315s 2,303.7968.3 952.3111.5 107.8856.8 844e6

1,006 1,023.S3,659.1 3,657s

495.035210340.0

221.010310216.0

120.0615.0

520.0376.7106.037.3

234.5114.0105.814.8

125.0645.0

--I

*--Annual Averages

1960-65 1970-7s

2,650.O a3 4 0 . 0 g

2,310.O9 6 9 . 5 E1 1 2 . 5 !$857.0- :

- 0

507.7 ii4 1 6 . 7 3

55.3 *35.7 g

14.2 8

* SOURCE: &Use Hearings, p. 9954.t Active duty force strengths include both sexes as reported in Statistical L4 b&act uj t?ze United States 1956, Table 365, p. 261 (Government Printing

Office: Washington, D. C., 1966). The paid drill reserve and National Guard strengths were obtained from unpublished data, DOD Statistical Office.t First enlistments include two-year reserve enlistments but exclude reserves recalled to active duty. Confer Statist&Z Abstract, ibid., Table 366,

p. -262.$ Data for officer accessions taken from a special tabulation prepared by the DOD Statistical Office=# &use Hearings, p. 10001.

M:ILITARY MANPOWER PROCUREMENT 43

qualification standards for military service, roughly 30.4 percent ofthese men would have been rejected? From independent data, I esti-mated that. 59.2 percent of qualified males entered active duty forceswhile another 14.4 percent served in reserve and Guard units. The in-cidence of active military service also varied across education groupsfrom a high of 76.8 percent of qualified high school graduates to 32.3percent of qualified college graduates.

The projected flows of accessions in FY 1970-75 under a continueddraft were developed in the DOD study and appear in the last columnof Table l.8 These projected flows were juxtaposed to a typica. ageclass born in 1946-48 which is estimated to contain 1,880 thousandmales. The estimated participation rate in active military service fallsfrom 41.5 percent of men born in 1938 to 27.0 percent for the age classof 1947. Only 38.5 percent of qualified males will be needed to staffactive duty forces in FY 1970-75.

Before turning to the characteristics of accessions to a voluntaryforce, it is desirable to assemble data on the structure of the entiremixed force. Higher qualification standards and secular gains in theeducational attainment of the entire population have contributed to anupward trend in the average education of members of the armedforces. The percentage of enlisted men with high school degreesclimbed from 55.2 to 72.8 percent between 1956 and 1963. Over thesame period, the percentage of officers with college degrees rose from55.5 to 69.4 percent. From the 1960 Population Census, it was possibleto obtain the age and educational distribution of members of thearmed forces stationed in the United States. If these data are ex-panded to the assumed force strength of 2*65 million men, I obtain thedistribution shown in Table 2.’ In relation to the male civilian laborforce, the armed services have smaller fractions in the lowest educa-tional level due to the mental qualification standards. The proportion

‘Approximately 16 percent of an age class is found to be physically unfit, whiIe anadditional 2.~ percent are rejected for moral reasons, mainly habitual criminals. Thesestandards have remained quite stable over the last twenty years. Mental qualificationstandards have, however, been raised as supplies of enlistment applicants grew in relationto requirements. Currently, mental standards have been lowered to a percentile score of16 on the Armed Forces Qualification Test. The overall rejection rate for all reasons was40.8 percent for men with 0-11 years of education and 19.1 percent for college graduates.

‘These projections assume an unemployment rate of 5.5 percent, the average unemploy-ment rate between 1957 and 1964. For details of the DOD projections, see House Hear-kegs, p. 9954. If the unemployment rate is as low as 4.0 percent, voluntary enlistmentscan be expected to fall with an accompanying rise in inductions.

@The total DOD force strength as of June 30, 1960, was 2,447 thousand males, but theCensus enumerated only 1,715 thousand. The distribution shown in Table 2 thus invokestwo assumptions. First, it is assumed that the same age-education distribution applies tomen stationed in the U.S. and overseas. Second, if the draft is extended, future accessionsand reenlistments will generate the distribution which was observed in 1960. 1 believethat these two assumptions impart a downward bias to the educational attainment ofmixed forces in FY 1970-75.

44 AMERICAN ECONOMIC ASSOCIATION

TABLE 2DISTRIBUTIONOIT ARMED FORCES BY AGE ANDEDUCATION

(For Force Strength of 2,650; Figures in Thousands)- -

&e0-8

Total DOD17 or less.. . . . . 11.3

18-19....... 21.720-21....... 18.422-24....... 30.825-29....... 34.730-34..*.... 38.235-44. . . . . . . 44.24554....... 12.3

SSandover . . . 2.8Total . . . . . . 2145

Years of School Completed

55.2141.3111.397.989.367.867.212.03.2

645.2

12

6.7218.6235.1238.3181.0124.3178.221.24.3

1,207.g

.414.348.381.147.434.781.214.91.6

323.9

722.7

79.663.128.559.921.33.2

258.5

Total

73.7396.2415.8527.7415.5293.5430.881.815.1

2,650.O

SOURCE: Derived from U.S. Census of Population, 1960; Subject Report: “EducationalAttainment,” Code No. DC(2) 5B, Table 4, p. 54.

of college graduates is also somewhat lower than in the civilian sectorfor the age groups above 30. Finally, since military pay is primarily afunction of years of service, the age structure (in terms of years ofservice) of the force as of June 30, 1965, is presented in Table 3. Undera continued draft, it is probable that the retention profiles of enlistedand officer personnel will not alter so that the mixed force of FY 1970-75can be expected to exhibit a similar age structure.

The task of estimating the cost and composition of an all-volunteerforce was approached in two steps. It was first assumed that the draftwould be abolished with no accompanying changes in pay or other re-cruitment incentives. An implication of this exercise is that supplies of

TABLE 3ACTIVE Dun FORCE STRENGTHBY~EARS OF SERVICIZ

(As of June 30, 1965, in Thousands)

Years of Service I Total I Officers 1 Enlisted

0 . . . . .1 . . . . .2 . . . . .3 . . . . .4

s--K : : :10-14. . .lS-19...20-24. . .

25 and over

Total. . .

...... 4277 28.4

...... 488.4 34.1

...... 301.6 25.0

...... 226.3 20.1

...... 99.8 12.9

...... 321.6 54.0. . .... 338.6 51.1...... 291 .O 58.4...... 131.4 45.4...... 17.7 9.4

...... 2,643.S 338.8

399.3454.3276.5206.286.8

267.7287.4232.686.08.1

I 2,304.9


volunteers fall short of requirements for the strength objective of 2.65million men. In the second step, military pay was advanced to attractenough volunteers to meet the strength objective.

If the draft is eliminated, the services would obviously lose the draf-tees who had accounted for 21 percent of accessions to enlisted ranksin FY 1960-65. In addition, the reluctant volunteers who had enlistedbecause of the draft liability are likely to remain in civilian life. Todetermine the probable number of reluctant volunteers, the Depart-ment of Defense made a survey in the fall of 1964 of servicemen andcivilians in the military ages of 16-34. First-term regular enlisted men(who had all voluntarily entered service between 1960 and 1964) weredivided into true and reluctant volunteers on the basis of their re-sponses to the question: “If there had been no draft, and if you had nomilitary obligation, do you think you would have volunteered for ac-tive military service?” Those who replied “no definitely” or “no prob-ably” were classified as reluctant. The percentage of true volunteers insubgroups identified by age and education at time of enlistment areshown in the first column of Table 4. The proportion of true volunteersis highest in the youngest and least educated group and declines withage and educational attainment. The fourth column gives the estimatedannual flows of voluntary enlistments in FY 1970-75 if the draft iscontinued, the mixed force case. Multiplying by the proportions oftrue volunteers, I obtain the estimated flows of enlistments if the draftwere abolished with no pay changes.” The same question on draft-mo-tivation was asked of officers on their first obligated tours and revealedthat 41.3 percent of officer accessions were reluctant volunteers. Inthe absence of a draft, it is probable that officer procurement programswill be revised placing more reliance on noncollege graduate sources.Space precludes a fuller discussion of the supplies of officer personnel.

Depletions in supplies of initial accessions due to the loss of drafteesand reluctant volunteers are offset to some degree by improvements inretention. Air Force studies show that first-term reenlistment rates aresubstantially higher for airmen whose primary reason for entry wasunrelated to the draft? If the reenlistment rate of reluctant volun-teers is assumed to be the same as that of draftees, one can deduceprobable reenlistment rates in an all-volunteer force? Higher reenlist-

” These estimates contain a downward bias. It is likely that by FY 1970-75, the otherservices will enjoy excess supplies of enlistment applicants, some of whom will replacethe reluctant volunteers. However, the shortfall in regular Army enlistments will persist.

U Survey questionnaires try to determine the single most important reason for originalentry. Two of several possible choices include “choice of service” and “volunteered inpreference to being drafted.” Follow-up studies of respondents reveal that airmen selectingthese responses had substantially lower reenlistment rates.

” over the period 1957-64, the weighted average for first-term reenlistment rates of

46 AMERICAN ECONOMIC ASSOCIATXON

ment rates imply lower personnel turnover which, in turn, leads tosmaller required accessions to sustain a given force strength. If the

TABLE 4

EFFECT OF THE DRAFT ON VOLUNTARY ENLXTIKENTS-SURVEY RE S P O N S E S(Classified by Age and Education)

Age at Entry Percentageand of True

Education Volunteers*

- -17-19 years of age

Less than high school. 79.3High school graduate. 63.7Some college. . . . . . . . . 55.9

Total. . . . . . . . . . . . . . . 68.7

20 and overLess than high school. 60.2High school graduate. 42.3Some college. . . . . . . . . 32.7

Total. . . . . . . . . . . . . . . 40.5

All agesLess than high school. 77.4High school graduate . 59.5Some college. . . . . . . . . 42.1

Total. . . . . . . . . . . . . . . 61.9

Number of DOD Voluntary Enlistments inSamplet FY 1970-75

Number Percent

lG7.8 27.7 122.2247.1 40.8 188.044.0 7.3 18.3

4S8.9 75.8 328.5

96.2119.710.2

226.1

36.645.53 .9

86.0

20.2 3.3 14.3 8 . 6 3.361.7 10.2 42.8 18.1 6.964.4 10.6 31.1 10.2 3 .9

146.4

31.151.017.9

100.0

24.2 88.2 36.9 14.0

31.151.017.9

100.0

136.5 104.8 39.8230.8 137.8 52.449.4 20.4 7.8

416.7 263.0 100.0

WithDraftt

-i No Draft

gumber $ Percent- -

* Based on responses of regular enlisted men in their first term of service to the question,“If there had been no draft and if you had no military obligation, do you think you wouldhave volunteered for active military service?” Entries denote the percentage who responded,“Yes, definitely,” or, “Yes, probably.”

t Figures may differ from force strength statistics due to elimination of nonrespondentsand sampling variability.

$ Estimates of voluntary enlistments in FY 1970-75 if the draft is continued.$ Obtained by multiplying columns 1 and 4. Assumes that the draft is eliminated but

pay and recruitment incentives are unchanged.

transitional problems of moving to a voluntary force are ignored, I ob-tain the following estimates of gross flow demands (required acces-sions) to maintain a force of 2.65 million men :

draftees was R d = 7.67 percent as compared to R = 22.06 percent for reguIar Army en-l&tees. The observed rate for all e&tees, JZ, can be regarded as a weighted average ofthe rate for true volunteers &, and of reluctant volunteers & which is assumed to beequal to that of draftees.

R = kRv + (l- k)Rd

where k is the proportion of true volunteers. In the case of the regular Army wherek -- S68 (the proportion of true volunteers), the first-term reenlistment rate is estimatedto rise from R = 22.1 percent to R v = 33.0 percent. Similar improvements in retentioncan also be edxpected of the other services as well as for officers.


GROSS FLOW DEMANDS FOR A FORCE STRENGTH or 2.65 MILLION LM~~

Voluntary Force Mixed Force(no draft) (with draft)

--.--- --pTotal required accessions to enlisted ranks. . 333.5

Other services. . . . . . . . . . . . . . . . . . . . . . . . . 188.9Army-total. . . . . . . . . . . . . . . . . . . . . . . . . . 144.G

Volunteers*. . . . . . . . . . . . . . . . . . . . . . . . . 144.GInductions, . . . . . . . . . . . . . . . . . . . . . . , . . 0

Required accession of officers . . . . . . . . . . . . . 28.4Total gross flow demands. . . . . . . . . . . . . . . . . 361.9

472.0257.7214.3159.055.335.7

507.7

* Assumes a 5.5 percent unemployment rate.

Ratio

.707

.733

.675

.909

.E6,713

Voluntary supplies in the absence of a draft fall short of requirementsfor the strength objective with the deficit being largest in the Army.

The manpower deficits can be eliminated by raising military pay toattract more volunteers. The responsiveness of enlistments to paychanges was estimated from cross-sectional data.13 Of several function-al forms which were fitted to the data, the most consistent fit was pro-vided by a complement supply equation?

(1) 1 - E = a!Y-fl

where E is the enlistment rate and Y denotes relative pay, the ratio offirst-term military pay M to alternative civilian pay CL This supplyequation implies that a 1 percent rise in relative pay leads to a p per-cent decline in the remainder (complement) of the population not inmilitary service. The elasticity of supply E is,

An upper bound to the necessary pay increase is obtained by re-stricting the analysis to Army enlisted personnel. For a total strengthof 2.65 million, the Army enlisted strength is 857 thousand. Under acontinued draft, 159 thousand recruits are projected to volunteer while

D True voluntary enlistment rates in relation to the civilian male labor force 17-20years of age (adjusted for mental qualification) were estimated for the nine Census regionsfrom the 1964 DOD survey. Two enlistment rates were developed corresponding to (1)total DOD enlistments in Mental Groups I to III and (2) Army enlistments in MentalGroups I to III. Voluntary enlistments of men in upper Mental Group IV (AFQT peracentile scores of 20-30) were omitted since their enlistments were limited by recruitmentquotas. The data which were used in the supply analysis can be found in &use Bxz&z~~,p. 9957.

“This functional relationship was suggested to me by Prof. A. C. Harberger. In es&mating the parameters, an unemployment variable was included as an explanatory vari-able. I have deleted it here to simplify the exposition. Since unemployment is held constantin the projections, its influence is included in the constant term CL A fuller analysis ofsupplies of military personnel is contained in the paper by AItman and Fechter in tbtiseries.

48 AMERICAN ECONOMIC ASSOC!IAT:OBi

another 55.3 thousand will be drafted. In a steady state after thetransition, a voluntary Army with its lower personnel turnover canbe sustained by annual enlistments of only 144.6 thousand. If thedraft is eliminated, Army enlistments are expected to fall by 43.2 per-cent to annual inputs of 90.3 thousand. The necessary increase in en-listments is thus given by the ratio of required accessions to voluntarysupplies with no pay changes; that is, 144.6/90.3 = 1.601. The payincrease ( YJYO) that will achieve this increase in enlistments is esti-mated from the complement supply equation.

The estimated Army supply equation revealed an estimate for @ of.108 implying an initial elasticity of supply of 1.36. The necessary payincrease to meet manpower requirements on a voluntary basis was esti-mated to be l.6V5

The 68 percent pay increase is presumed to apply to men on theirfirst term. The mechanics of implementing this pay increase deservebrief mention. The annual income of a serviceman includes moneypayments for various reasons and some income in kind. In this paper,I shall use the concept of tax equivalent income which includes ( 1)base pay, (2) money payments for subsistence, quarters, and uni-forms, (3) the implicit value of subsistence and quarters if the service-man receives no money allowances for these, and (4) the taxadvantage? The total military incomes of enlisted men classified byyears of service appear in Table 5. It will be noticed that pay is ex-tremely low in the first two years because pay increases prior to 1964applied mainly to the career force. If first-term pay is raised by 68percent, I assumed that the discontinuity in the pay structure would beeliminated so that the average pay over the first three years of servicewould climb from $2,500 to $4,200. In order to prevent reversals inthe pay structure, the career force would enjoy a 17 percent increase inannual tax equivalent incomes.

With these pay increases, the armed services should be able to meet

ES My estimate of the necessary increase in first-term pay is lower than the DOD esti-mates. The DOD study presented three estimates corresponding to three values of fl;namely, the point estimate of B and the point estimate plus or minus one standard errorof the regression coefficient. For the case of a 5.5 percent unemployment rate, I havereproduced the estimated percentage increases in first-term pay; see House Hewings, p.9958 ; DOD low estimate, 80; DOD best estimate, 111; DOD high estimate, 181; myestimate, 68. The difference between the DOD best and my estimates is due to differentestimates of required accessions. My procedure deals with a steady state in which theArmy enjoys the retention profile of a truly voluntary force.

la Income in kind is clearly nontaxable. In addition, subsistence, quarters, and uniformallowances are classified as nontaxable, thereby giving servicemen an indirect tax advantagewhich accounts for about 5.5 percent of tax equivalent income.


TABLE 5ANNUAL MILITARY INCOMES OF ENLISTED MEN

(For Pay Scales of FY 1963)

Years Totalof Income

Service DOD

1 . . . . . . 1,8302 . . . . . . 2,1433 . . . . . . 2,9914 . . . . . . 3,3445 . . . . . . 4,1306 . . . . . . 4,4627 . . . . . . 4,G49

9-5 8 111 4,7415,235

13-16.... 5,92617-20.... G,387

I

-1

Army

Total TaxableIncome Income

-_-1,900 1,0582,304 1,3593,247 2,1993,711 2,3924,248 2,G914,4GS 2,7924,596 2,9374,797 3,0375,377 3,4096,043 3,918G,414 4,245

I.+

BasePaY

Base Pay asPercent of

Total Income

1,0551,3822,0022,4332,5752,7252,8583,0033,2803,885n.a.

55.5GO.0Gl.765.660.661.062.262.6Gl.064.3

strength objectives with voluntary supplies of personnel. Since the inci-dence of reluctant volunteers is higher for older, more educated men,the voluntary force can be expected to have a lower average education-al attainment. Because of its lower personnel turnover, only 27.5 per-cent of qualified males is required to sustain a voluntary force of 2.65million men.

The lower personnel turnover also raises the career ratio defined asthe proportion of men on their second and later tours of duty. IIence,the move to a voluntary army raises the career ratio of regular Armyenlisted men from .43l to S37. The age structure of the voluntaryforce was thus developed from the new retention profiles and appearsin Table 6. Finally, the educational distribution of the voluntary forcewas inferred from the education mix of true volunteers. It was as-sumed that officer procurement programs for noncollege graduateswould be expanded. The proportion of enlisted men with O-S years ofeducation was small for two reasons. First, the minimum AFQT scoreis assumed to be held at 16, and second, the secular trend toward moreeducation implies a slower growth for this population base. The hypo-thetical educational distribution of Table 7 pertains to a voluntary forcein a steady state after the transition period.

In analyzing the cost and characteristics of a voluntary force, I ne-glected several pertinent factors of which at least three should be dis-cussed: (1) the transitional period, (2) the savings which obtain fromlower turnover, and (3) possible substitutions of civilians for uni-formed men. In order to maintain force strengths in the transition, re-quired accessions are likely to be at least 10 percent greater than inthe steady state. The necessary first-term pay increase to sustain Army

SO AMERICAN ECONOMIC ASSOCIATION

TABLE 6ACTIVE DUTY FORCE STRENGTH BY YEARS OF SERVICE

(Hypothetical Voluntary Force, in Thousands)PP - - -PP MS

Years of Service Total Officers En&ted

0 . . . . . . . . . . . . 355.3 34.5 320.81 . . . . . . . . . . . . 327.5 33.6 293.92 . . . ..*...... 299.2 32.1 267.13 . . . . . . . . . . . . 204.4 20.2 lS4.24 . . . ...“..... 108.0 16.0 92.0

5-9. . . . . . . . . . . 455.6 (55.4 390.2lo-14.......... 343.3 51.5 291.8lS--19.......... 304.6 44.1 260.520-24.......... 165.2 28.1 137.1

25 and over.. . . . . .’ XI.9 14.5 72.4

Total. . . . . . . . . . 2,650.O 340.0 2,310.O- _P

force strengths during the transition is estirnated to be 94 percent asopposed to the previous 6S percent pay increase. ‘The average annualmilitary pay over the first term climbs from $4,200 to $4,850.

In the mixed force, at least 10 percent of the active duty force is in-volved in training. Since initial accessions to a voluntary force are some30 percent smaller, the voluntary force strength could be reduced by atleast 3 percent and still retain the same number of men in an “effec-tive” status. In addition, if men who are engaged in training others aremoved to other duty assignments, further savings could be realized. Acut in the size of a voluntary force which ac-hieves the same effectivestrength implies a corresponding reduction in required accessions. Ne-glect of these savings from lower turnover thus imparts an upward biasto my estimate of the necessary pay increase.

Many medical, clerical, food service, and maintenance positionswhich are now staffed by servicemen could be filled by civilians. Given

TABLE 7ACTIW DUTY F’ORCE STRENGTH BY AGE AND EDUCATION

(Hypothetical All-Volunteer Force)

Total DOD17-19 . . .20-21...22-24 . . .25-29 . . .30-34 . . .35-44 . . .45-54 . . .

55 and over.Nlages...

--p.-

--Years of School Completed

0-8

25.730.328.822.6S7.120.73.1

143.3

9-11--P

145.1170.8133.9127.3100.5124.119.1

t32F8

12- -

13-1s 16 and Ovel- - -

Total

212.1 18.0;8

400.9248.6 26.5 481 .o194.0 31.8 41.1 424.6188.7 41.0 84.6 464.2147.5 29.7 52.5 347.3182.7 39.6 74.5 386.928.8 8.6 30.2 89.7

0 0 0.7 0.71,202.4 195.2 288.3 2,650.O


current military pay scales, assignment of mihtary personnel to thesejobs may well produce the lowest budgetary cost. However, when mili-tary pay is sharply advanced, it becomes economical even from thevie\vpoint of budgetary cost to substitute civilians for uniformedmen.17 By implementin g these substitutions? the size of the armedforces cou1.d be reduced without changing the tasks performed by thetotality of civilians and military personnel. A careful study of thesepossibilities for substituting civilians should, in my opinion, be an inte-gral part of moving toward a voluntary force.

II. The Financial Cost oj the Amted Foms

According to the defense budget for FY 1965, the cost of active dutymilitary personnel was $12,662 million; retirement benefits accountedfor another $l,.SM million.18 A second estimate of the payroll cost isobtained by applying the annual military incomes of Table 5 to the agestructure of the force. This estimate of $12,049 million differs from theDOD cost because my measure of military pay excludes many payitems? This latter procedure is, however, the only way to estimate thebudgetary cost of a voluntary force.

In order to achieve a voluntary force with the same strength as themixed force, the entire pay profile is shifted upward with the largestpay increases applying to the first four years of service. In a voluntaryforce, larger fractions of men are in the career force with the resultthat the higher military incomes in later years receive more weight Ifthe higher pay profiles are applied to the probable age structure of avoluntary force, Table 6, I obtain an estimated payroll cost of$16,103 million.zo These cost estimates thus imply that the defense

I7 The stock demand for military personnel is not completely inelastic. At higher prices9fewer men wouId be demanded by the services. A consideration which operates in theopposing direction is the provision of rotational billets. Some jobs must be kept for menon rotation from overseas assignments. The demand for military men is likely to be de-termined by the anticipated peak load demand so that a considerable part of the force isalways idle. This is as it should be and the reason for maintaining a standing army.

?Ttatistical Abstract of the U.S., 1946, Table 153, p. 112.“Flight pay, sea duty pay, and many other pay items were omitted in the annual tax

equivalent incomes shown in Table 5. Another source of error is that the age structureof the force, Table 3, applies to years of active military service? while the pay profile ofTable 5 is based on years of service for pay purposes; the latter is always equal to orgreater than the former, thereby imparting a downward bias to my estimate of the payr0l.Icost. Finally, I had only rough estimates of annual tax equivalent incomes for officers.

‘* In arriving at this coTt, I assumed that an enlisted man received $$oOO in his firstyear of service with annual increases of $.XN over the next three years. Enlisted men’s payin later years was raised by 17 percent. The officers’ pay profile was adjusted to eliminatethe discontinuity in the pay profiIe. As a result, average annual pay for officers in theirfirst three years of service rose by 20.1 percent. The additional payroll cost of a voluntaryforce contains an upward bias since I have neglected the savings from lower personnelturnover and possible substitutions of civilians for uniformed personnel. Finally, it maybe cheaper to attract recruits with recruitment incentives other than higher annual mili-tary incomes. Initial enlistment bonuses, greater pay differentials for skilled personnel, oreducational/training benefits could be incorporated into the pay structure.


TABLE 8MEDIAN IXCOMES OF CIVILIAN MALELABOR FORCE, 1964

- -

55

l7-l9.... 2,01020-21*. . . 2,391

2,926

22-24t.. .3,314

3,16025-29$. . . 3,673

4,026

30-34....4,500

4,2963544.... 4,710

5,339

45-54.... 4,7175,860

and over .5,636

4,229 4,944

0-8

Years of Education Completed

9-11 12

3,1963,9244,7895,3666,1676,5286,5496,135

13-1s 16+- - P---.

3,1474,6685,168 Q&J5,502 6,2136,9107,389

8,353

7,8559,853

10,8466,642 9,883

* Incomes for males 21 years of age and under estimated from DOD survey of civiliannonveterans, 16-21 years of age. Adjusted for unemployment.

t Incomes interpolated from data for ages 20-21 and 25-29.$ Median total. incomes taken from Sta.tistical A bstya*ct oj the hited States, I966, Table 157,

p. 115. Figures were adjusted for unemployment rates of 2.8 percent for males 25 and olderand with more than 8 years of education, and 4.7 percent unemployment for males withless than 8 years of education.

budget must be increased by $4 billion per year to obtain a voluntaryforce of 2.65 million men. The budgetary cost of moving to an all-vol-unteer force would be even higher if one considered the transitionalperiod and additional retirement benefits.

Turn next to the financial cost of the armed forces to the economyas a whole. In both mixed and voluntary forces, 2.65 million men areallocated to maintaining the defense of the nation and are thereby keptout of the civilian labor force. The alternative cost of the armedforces is the value of civilian goods and services that could otherwisehave been produced by them. An ideal measure of this cost would re-quire estimates of the marginal value products of men in military ser-vice. An approximation can, however, be obtained by assuming thatcivilian incomes are equal to marginal value products. Median civilianincomes in 1964 classified by age and educational attainment and ad-justed for unemployment are shown in Table 8. If servicemen were re-located to the civilian sector, it is assumed that they could earn thesame incomes as civilians of similar ages and educational attainment.Two pieces of evidence suggest that these incomes are too low. First,the median incomes of veterans were about 2.5 percent higher than in-comes of all civilians.21 Second, a DOD survey revealed that prior ci-vilian earnings were somewhat higher for men in the upper mental

*‘.A comparison of median incomes in 1959 revealed that veterans typically earned morethan all males in the civilian labor force. Veterans 25-34 years of age with 12 years ofeducation earned 2.3 percent more than all males. An opposing pattern is observed forveterans of World War II who were over 45 years of age in 1959; there, the veteransearned less than all males. These income estimates can be found in? U.S. Census of PofwZation 1960, “Earnings of Total Civilian Male War Veterans in Experienced Labor Forcein 1959,” Table 16 PC (2), 8C. “Earnings of Males 25-64 in Experienced Civilian LaborForce in 1959,” Table 1, PC (2) ?‘B.


groups. Since the mental distribution of servicemen is higher than thatfor the entire population (especially when education is held constant),their alternative civilian earnings should also be higher. The use ofmedian civilian incomes thus imparts a downward bias to the alterna-tive cost of labor resources allocated to the armed services.

If the mixed force described in Table 2 had earned the civilian in-comes of Table 8, they would have received an aggregate annualincome of $13,041 million. The corresponding financial cost for thevoluntary force of Table 7 was $14,233 million or 9.1 percent greaterthan that of the mixed force. Although the voluntary force has moremen with less than twelve years of schooling, it also contains moreolder men, and on balance, the age effect outweighs education.

These cost estimates do not take account of personnel turnover. Inthe mixed force, larger fractions of an age class enter active militaryservice for shorter tours of duty. The critical question is, are civilianincomes in later life reduced by short (two to four years) tours of ac-tive dutv? The relationship of income to age (given education) can beexplainedd in two ways. One is that older men have acquired on-the-jobtraining which is reflected in higher incomes. The second argues thatage is a proxy for maturity and stability which commands higherincome.22 If the first explanation is correct and if military training isnot a perfect substitute for civilian job experience, the financial cost ofthe mixed force must be increased to refl&t the cost of postponing ci-vilian job training for more members of an age class.

The financial costs of $13.0 and $14.2 billion for mixed and volun-tary forces are only slightly larger than the payroll cost of $12.7 billionfor the mixed force. Military pay is, however, considerably below al-ternative civilian incomes for men on their first tours, while men in thecareer force receive slightly higher incomes than their counterparts incivilian life. It should be emphasized that these financial costs disre-gard the occupational preferences of individuals, some of whom areinvoluntarily inducted into the mixed force. They simply provide ameasure of technical efficiency in terms of the value of goods and ser-vices which the economy relinquishes to maintain a standing army.

III. The F&l Economic Cost oj the DrajtThe full economic cost embraces the principle that equalizing in-

come differentials are properly included in the opportunity cost ofacquiring men for military service. A simple theory of occupational

“Becker argues that the age profile of income is mainly attributabIe to investment inhuman capital via on-the-job training. See G. S. Becker, I’hrnan CupituZ (Columbia Univ.Press, 1964). The second thesis could be rationalized by my theory of fixed employmentcosts. Older men are more likely to be married and possess other attributes which arecorrelated with low labor turnover. If hiring and initial training costs are large, it be-hooves the firm to offer higher wages to men with longer expected periods of employ-ment. See, W. Y. Oi, “Labor as a Quasi-fixed Factor,” J.P.E.9 Dec., 1962.

54 AMERXCAN ECONOMIC ASSOCIATXON

choice along the lines of Marshall” provides a useful analytic frame-work. The economy can be imagined to consist of two industries:military and civilian sectors. Since pay cannot be separated from con-ditions of employment, occupational preferences (utilities and disutili-ties of the job) necessarily affect supplies of labor. Suppose that anindividual, A, could earn an income C in the civilian sector while cur-rent first-term military pay is J&L If military and civilian pay werethe same, JL = C, an individual with an aversion for service lifewould elect to remain in civil life. Military pay could, however, beadvanced by enough to compensate A for his disutility, thereby at-tracting him into the military sector. There is, in principle, someminimum supply price J4” with its accompanying equalizing differen-tial 6 such that A would be indifferent between employments in thetwo sectors when J4 = (1 -I- 8) C < &, A would volunteer for mili-tary service.

Occupational preferences can thus be expressed in. terms of equal-izing differentials 8. If 6 > 0, the individual must be compensatedbefore he would volunteer. It is possible that some men prefer militaryservice in which case 6 would be negative. The supply of men to thearmed forces is then determined by the joint frequency distributionof alternative civilian incomes C and equalizing differentials a. At cur-rent military pay, the voluntary supply of recruits consists of thoseindividuals for whom J.40 > (1 -I- B)C. If pay is advanced, the alrmedforces cou1.d attract men with higher civilian incomes or with greateraversions (meaning larger values of 8) for service life. The comple-ment supply curve given by equation (1) implies that over the rele-vant range, the frequency distribution of occupational preferences, 8,follows an exponentially declining function.

The draft imposes costs on men in the armed services in at leastthree ways. First, more men from an age class are dema,nded by thearmed forces under a draft because of the high turnover of drafteesand reluctant volunteers. Second, some men are involuntarily draftedwhile others are coerced to enlist by the threat of a draft without beingcompensated for their aversion to military employment. At sufficientlyhigh levels of military pay, all of these reluctant service participantscould, in principle, have been induced to volunteer. Finally, the truevolunteers who would have enlisted irrespective of the draft law aredenied the higher military pay that would prevail in a voluntary force.First-term military pay can be kept at low levels because the draft as-sures adequate supplies of initial accessions.

In the years ahead, FY 1970-75, it is projected that only 55.3 thou-sand men will be drafted each year. If the DOD survey responses ofTable 4 are valid, another 153.7 thousand annual accessions to enlisted

‘a Alfred Marshall, Principles oj Economics (8th ed., Macmillan, 1952), pp. 547-70.


ranks can be classified as reluctant volunteers. These projected annualflows of reluctant participants are distributed by education and age atentry in Table 9. However, all 209 thousand reluctant entrants will notbe demanded by a voluntary force which is likely to enjoy consider-ably lower personnel turnover. In fact, the projected annual flow of263 thousand true volunteers would have to be increased by only 75thousand to sustain a voluntary force of 2.65 million men: 55 thou-sand in the Army and 20 thousand in the o,ther services.

To measure the economic cost of the draft, one must know the mini-mum supply price &Z at which each draftee and reluctant volunteercould be induced to become a true volunteer. Such data are simply un-available, and some simplifying assumptions must be invoked to arriveat an estimate of this cost. It seems reasonable to suppose that the153.7 thousand reluctant volunteers who entered as regular enlistedmen in preference to being drafted have less aversion to military ser-vice when compared to draftees and men who never enter service.24 In-deed, if the draft were abolished and military pay advanced, I suspectthat most of these men would become regular volunteers. A lowerbound to the economic cost is thus obtained by assuming that these re-luctant volunteers have the lowest minimum supply prices. Accordingto the complement supply curve for enlistments to all services, first-term pay must be raised by a factor of 1.88 to attract an additional153.7 thousand recruits.25

The exposition is facilitated by referring to the supply curve ofFigure 1. If the draft is eliminated with no pay changes, the annual

” It has been alleged that many reluctant volunteers are prompted to enlist in prefer-ence to being drafted beca,use of the uncertainties about whether they will be drafted, orif so, when. In his doctoral dissertation, David Bradford argues that men who becomereluctant volunteers because of this uncertainty are those for whom the relative cost oflater military service is the bureatest. He further argues that the absolute cost of activemilitary service is immaterial. I believe that his argument is specious because he considersonly a dichotomous choice. The gist of his simple model can be put as follows. Let Cobe the subjective cost to the individual of active military service now, while Cl is thecost of entry at a later date and older age. If p is the subjective probability that he willbe drafted later, this individual would prefer to enlist now if Co < PC1 or (C&J < p*Hence, only the ratio or relative cost of later entry, (C/C) matters. There is, however,a third option available to every draft liable youth ; namely, securing a deferment. Thismay entail a cost Cd especially if he must become a father or minister, or if he mustpursue an occupation which bestows an occupational deferment. There are many reasonsto suppose that the cost of acquiring a deferment, Cd, is independent of Co and Cl, thesubjective cost of actually entering military service. Hence, if Cd < Co, the individualwould secure the deferment and never enter military service. Moreover, if Cd is the samefor all individuals, Bradford’s analysis applies only to men for whom the cost of activemilitary service C0 is greater than Cd. For the details of Bradford’s analysis, the readeris referred to, David F. Bradford, ‘The Effects of Uncertainty in Selective Service,” Tech-nical Report No. 144 (Inst. for Math. Studies in the Sot. Sci., Stanford Univ., 1966).

zs The complement supply curve, equation (1), for enlistments to total DOD revealedan estimate of fi of 315 with a standard error of .Ot37. In the absence of a draft, theenlistment rate (Mental Groups I to III) was estimated to be 27.8 percent of the qualifiedcivilian labor force in an age class. In deriving the supply curve shown in Figure 1, I setfi equal to .402, the point estimate plus one standard error. The elasticity of this supplycurve at the initial enlistment rate was +l.@!. Because of the upward bias in the supplyelasticity, my procedure understates the magnitude of the economic cost.

TABLE 9

PROJECTED ACCESSIONS TO ENLISTED RANKS UNDER A CONT~N~D DR A F T, FY 1970-7s(By Age at Entry, Education, and Draft Motivation)

k

Total

Voluntary enlistments under a continued draft17-19years......................................20 years and older. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A l l a g e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reluctant volunteers

328.588.2

416.7

17-19years......................................20 years and older. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Allages.............._..._...,........._....

Inductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Reluctant military service participants

17-19years......................................20 years and older. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A l l a g e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SOURCE: Derived from Table 4.

102.451.3

153.755.3

102.4106.6209.0

-

--

-

0-8

15.0 107.21.4 12.9

16.4 120.1

3 . 00 . 43 . 44.3

3 . 04.77.7

23.05.3

28.315.2

23.020.543.5

Years of School Completed

9-11-

--

-

12 13-1s

188.0 18.342.8 25.8

230.8 44.1

68.3 8.124,7 17.893.0 25.921.9 10.5

68.3 8.146.6 28.3

114.9 36.4

iAEG6 and Over z

0 x

5.3 0

5.3 kz0 zi

3 .1 +3.1 %3 . 4 8

F0 H

6.56.5

8

MILITARY MANPOWER PROCUREMENT

Ehlistments

FIGURE 1.SUPPLY CURVE OF VOLUNTARY ENLISTMENTS TO TOTAL DOD

supply of voluntary enlistments is projected to be around 263 thou-sand men at a first-term pay M~I = $2,500. If pay is increased by afactor of 1.88 to M1 = $4,700, the annual supply of recruits climbs to416.7 thousand men; i.e., from OA to OB accessions. The reluctantvolunteers (the line segment AB) enlist at the lower pay MO in orderto avoid being drafted. The difference between their minimum supplyprices and the current first-term pay M O represents an implicit taxwhich is borne by these men. The aggregate annual cost for the 153.7thousand reluctant volunteers is thus given by the area of the triangle, ’DB’E, or $141 million. This estimate tacitly assumes that each re-luctant volunteer is compensated in a discriminatory fashion withoutcompensating the true volunteers. If, however, pay were raised to$4,700 for all recruits including true volunteers, the annual cost of thedraft is increased by the additional amount MoDEMI or $917 mil-l ion? The lower annual cost of $141 million which excludes rentsrepresents an implicit tax levied against reluctant volunteers who

*?In competitive labor markets, these rents are always included in the additional costof acquiring larger supplies of labor. If college professors could be conscripted and com-pelled to work, or if the economic rents of teaching versus other occupations could beeliminated, the budgetary cost of higher education could be greatly reduced.


were coerced to enlist by the draft liability. In a sense, each reluctantvolunteer pays, on average, an implicit tax of $915 in each of the 3.5years of his first term of service. If the point estimate of F had beenused in these calculations, the aggregate annual cost, DB”E, is esti-mated to be $192 million.27 Since each regular enlistee serves for 3.5years, the total tax (excluding rents) borne by the reluctant volun-teers in an age class is conservat.ively estimated to be $493 million;the best estimate is $672 million.

The economic cost of conscripting men into military service isharder to assess. The Selective Service System does not attempt todraft men with the least aversion for military life. The suppositionthat draftees were next in line above the point E in Figure 1 is lessplausible than in the case of reluctant volunteers. However, a lowerbound estimate is again obtained by assuming that draftees had thesmallest equalizing income differentials and hence the lowest minimumsupply prices. In Figure 1, first-term pay must be raised from Ml =$4,700 to M2 = $5,900 to attract the 55.3 thousand draftees (theline segment BC) on a voluntary basis. If each draftee is compen-sated in a discriminatory fashion, the implicit annual tax which isborne by involuntary draftees is given by the area EB’C’F or $175million.28 Since the average active duty tour for a draftee is about1.9 years, the total implicit tax for draftees in an age class is $333million.

Each reluctant volunteer and draftee could, in principle, have beeninduced to enter active military service on a voluntary basis. Thedraft, however, compels some to serve while others are coerced to en-list at military pay scales which are below their minimum supplyprices. The difference between minimum supply price and current first-term pay is simply an implicit tax-the economic cost of active mili-tary service for reluctant service participants. A lower bound estimateof this cost (for those who serve in enlisted ranks) is derived from thearea DC’F and is approximately equal to $826 million for reluctantparticipants in an age class. If the least squares estimate of the sup-ply of voluntary enlistments were used in the supply curve of Figure 1,I obtain the middle estimates in the last column of the following sum-mary table :

” If the value of @ is reduced from .402 to its least squares point estimate, 115, theelasticity of supply falls from 1.04 to 0.82. Using the point estimate, the necessary first-term pay A& to attract OB volunteers rises from $4,700 to $5,600.

” Since the draftee serves for only two years, his annual military income of $2,100 isless than the first-term pay of regular enlistces, A& = $2,500. Hence, the annual cost isslightly greater than the area EB’C’F in Figure 1. If @ is set equal to .3 15, first-termpay must rise to Mz I= $7,450 to attract the draftees on a voluntary basis. In this event,the annual cost climbs to $243 million, and the aggregate cost for the draftees in an ageclass rises from $333 to $462 million.


ESTIMATES OF TFIE IMPLICIT ‘TAX ON RELUCTANT SERVICE PARTICIPANTS

Annual first-term payiV* . . . . . . . . . . . . . . . . . . . . . . . . . . . .iI& . . . . . . . . . . . . . . . . . . . . . . . . . . . .I&...*........................

$2,500 $2,5004,700 §,6005,900 7,450

AnnuaI cost excluding rents (millicns)Reluctant volunteers (LIB%) . . . . .Draftees (EBY?F) . . . . . . . . . . . . . .

141 192175 243

Aggregate cost for an age chss, excluding rents(millions)

Reluctant volunteers . . . . . . . . . . . . 493Draftees . . . . . . . . . . . . . . . . . . . . . . . 333T o t a l . . . . . . . . . . . . . . . . . . . . . . . . . . 826

Low Estimate(p== .402)

1

--

kliddle Estimate(/?= .315)

672462

1,134

The economic cost or implicit tax placed on men who were coerced toserve by the draft provides a lower bound estimate of the opportunitycost of acquiring enlisted men. The estimates shown in the precedingtable are biased downward because the men who bear the cost are as-sumed to be those with the lowest supply prices in the absence of adraft. These estimates also neglect the rents that would have been paidto true volunteers in a competitive labor market. Under a draft, we notonly tax the reluctant service participants but we also prevent true vol-unteers from collecting these rents. The full economic cost which in-cludes these rents is estimated to be $5,364 million when I use the sup-ply curve of Figure 1.

It is of some interest to separate the economic cost of the draft into(1) the loss of alternative civilian income during active duty serviceand (2) the net sum of equalizing income differentials to overcome av-ersions for service life. If the median 1964 civilian incomes of Table8 are applied to the probable distribution of reluctant participants,Table 9, the average alternative civilian incomes are:

ESTIMATED ANNIL~L CIVILIAN ~COILES OF DRAFTEES AND RELUCTANT VOIXJNTEERS- -

Annual Flows Civilian Military(Thousanck) Income Income Ratio

Reluctant volunteers . .Draftees . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . .

The differential between alternative civilian and military incomes obvi-ously varies, being larger for older, more educated men. The infrequentcollege graduate who is involuntarily inducted can expect a financialloss of over $3,000 a year. The aggregate financial cost to members of


an age class (the difference between alternative civilian and currentfirst-term pay) is estimated to be $691 million. This financial cost re-sults from the abnormally low levels of first-term pay and is indepen-dent of the occupational preferences of reluctant service participants.

In this paper, the economic cost has only been estimated for menwho serve in enlisted ranks because of the draft. A fuller analysiswould include the costs borne by draft-motivated accessions to officerranks and to reserve and National Guard units. The available evi-dence suggests that these men (especially those who enlist in Guardand reserve programs) have high aversions for military service.2g

In addition to the direct costs borne by those who ultimately servein the armed forces, the draft allegedly creates other indirect costswhich derive from the mechanics of the selection process. Under thecurrent Selective Service System, a youth can remain in a draft-liablestatus for seven and a half years. There is some evidence which sug-gests that employers discriminate against youths who are still eligibleto be drafted.3o The youth who elects to wait and see if he can avoidmilitary service is likely to suffer more unemployment. He may be ob-liged to accept casual employment which does not provide useful jobtraining for later life. Moreover, long periods of draft liability encour-age youths to pursue activities which might bestow a deferment. Whenmarried nonfathers were placed in a lower order of call in September,1963, it was followed by small increases in marriage rates of males inthe draft-liable ages. It is also alleged that the draft prompts men toprolong their education or to enter occupations which grant defer-ments. These costs which derive from the uncertainty of the presentdraft are, in my opinion, small when compared to the direct economiccosts incurred by those who are involuntarily inducted or who becomereluctant volunteers.

If the current draft law is extended into the decade ahead, it is pro-

zgAccording to the 1964 DOD survey, draft-motivated enlistments accounted for 70.7percent of total accessions to reserve and Guard components. Moreover, the percentageof reluctant volunteers was higher for individuals with higher alternative civilian earningsas revealed by the following excerpt from the House Hearings (p. 9956).

Annual Civilian Income Percentage of Draft-Motivated EnlistmentsLess than $2,999 54.1$3 ,ooo-$4,999 71.6$5,000~$7,499 72.1$7,500 or more 82.2

WA survey of college placement offices in 1964 indicated that 48 percent of employersplaced restrictions on draft-liable males. According to the DOD survey of 22-25 year oldcivilians, 26 percent with draft classification I-A said that they had difficulty in securingemployment. The credibility of this type of question is challenged by the finding that 17percent of men with dependency deferments, III-A, also stated that they had difficultysecuring employment because of their draft liability. The percentages having “diffkulty”climbed with age and educational attainment. Further details of these surveys can befound in House Hearings, pp. 10008-10010.


jetted that only 38.5 percent of qualified males will be required to staffa mixed force of 2.65 million men. Since the draft assures adequatesupplies of initial accessions, military pay can be kept at artificially lowlevels. Many servicemen on their first tour can correctly be called re-luctant participants who pay substantial implicit taxes because theywere coerced to serve. A conservative estimate of the economic cost(excluding rents) is $826 million-the amount of compensation whichwould have been demanded by these men to enter on a voluntary basis.If all recruits received the first-term pay needed to attract the lastdraftee, the opportunity cost of acquiring new accessions would exceed$5.3 billion.

An all-volunteer force offers a polar alternative to the draft. With itslower personnel turnover, a voluntary force of the same size could besustained by recruiting only 2 7.5 percent of qualified males. The bud-getary payroll cost would, however, have to be raised by $4 billion peryear.

In closing, it should be emphasized that the figures appearing in thispaper represent my estimates. The two crucial ingred.ients are the sup-ply curve of voluntary enlistments in the absence of a draft and pro-jected gross flow demands which are determined by personnel turnover.Complement supply curves were estimated from cross-sectional dataon voluntary enlistment rates.31 The retention profiles which were usedto derive gross flow demands for an all-volunteer force generated anage structure of the force which closely approximates that of smallerprofessional armies in Canada and the United Kingdom. In the light ofthe data examined, I am reasonably confident of my cost estimates, atleast for the assumed force strength of 2.65 million men.

If peacetime military requirements necessitate larger active dutyforces, all costs necessarily climb. To sustain a force of 3.3 millionmen on a voluntary basis, the gross flow demand for new accessionsrises by roughly 30 percent. Estimation of the pay increase to achievethis larger force involves an extrapolation of the supply curve beyondthe range which I consider to be meaningful? The high budgetary cost

n Such data on a regional basis were only available for 1963. The recent enlistmentexperience is strongly influenced by the Vietnam build-up and the high draft calls. Inany move toward a voluntary force, I would strongly recommend an on-going researcheffort on the determinants of the supply of volunteers as well as on manpower utilizationpractices of the armed forces.

” The confidence interval for predictions from a regression equation becomes extremelywide as one moves outside the range of the sample observations. IIence, the followingestimates should be regarded as only indicative of orders of magnitude. In order to SUS-

tain a voluntary force of 3.3 million men, Army enlistments must be increased from 90.3to 185 thousand per year; the latter gross flow demand of 185 thousand assumes a steadystate. According to the complement supply curve, first-term pay would have to be raisedfrom $2,500 to $6,350 to attract sufficient recruits. If part of the pay could be given asinitial enlistment bonuses, the defense budget for active duty military personnel wouldbe increased by $8 to $10 billion per year.


of a voluntary force is not the only relevant consideration. If men areprocured under a draft, the high turnover of draftees implies that over60 percent of qualified males would be demanded by the armed ser-vices to maintain a mixed force of 3.3 million men. The military pay-roll under a draft will be lower. However, the conscription of militarypersonnel simply substitutes implicit taxes levied on reluctant serviceparticipants for explicit taxes on all citizens to finance the higher pay-roll of a voluntary force. The real economic cost of maintaining a largedefense establishment is partially concealed since these implicit taxesnever appear in the defense budget.

the economic cost of the draft the americun economic ... · the economic cost of the draft walter...

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